Saturday, July 17, 2010

R&R Time

Time to recharge in the Sierra's.

AT&T quality cell phone service.
No laptop or internet access.

Just me,

my son...

...and 21 of his Boy Scout buddies
(plus a couple of other Dads).

Next post in two weeks: August 2nd (or thereabouts)....

Sunday, July 11, 2010

Lessons Experienced

Last Thursday, I completed a three week stint teaching business to thirteen high school students at the Stanford University EPGY Summer Institute.  The course was entitled Evaluating Startup Ideas and was intended to be a survey course in marketing strategy and Silicon Valley startups.  As mentioned in an earlier post, in addition the the technical content, there were some other lessons I wanted to impart.

Based on both a formal and informal survey of the students, it appears that all of the students did indeed learn the marketing concepts taught and gained a good overview of the startup process.  And while different students took away different lessons, three in particular appear to have stuck with most of them:
  1. In business, the team is key.  This point was made clear in our visits to Picaboo and Tapulous, emphasized by our VC and legal guest speakers, and hammered home through the course project, where students had to come up with a startup idea, form teams, validate the ideas out in the field, and finally develop a presentation around it.   As expected, several students had to figure out how to deal with less than perfect team dynamics, including other team mates they felt weren't pulling their weight.  In my mind, the learning experience from this alone, made the project worth it!
  2. In a startup, the final idea will probably not be the one you started with.  The founders at both Picaboo and Tapulous talked about how the company evolved from their original ideas to current business model.  And our VC speaker made it clear that this need to change direction was one of the reasons having a good team was paramount in his investments.
  3. Anyone can start a company.  Passion for a product is important but being a specialist is not.  And while an entrepreneur needs to think things through, the idea does not need to be fully fleshed out to start, see (2) above.
As expected, the experiential aspects of the course - cases, field trips, and customer discovery project - proved to be the most effective way to convey these to the student (as well as the most fun).  If I ever teach this type of course again, I will definitely add more experiential exercises and cut back on the lectures.  But overall, I'm pleased to have the student's take away these three particular lessons experienced as a foundation from which to launch their business careers.

And to reemphasize that it is all about team, I'd like to thank the team that made this course happen.  Thanks to:
  • Rick Sommer, Christine Parker and their staff at EPGY for providing the opportunity to teach this course in the first place and making sure everything ran smoothly.
  • My teaching assistants Clare Bruzek and Steve Singleton who did a great job of running the study sessions and handling the logistics of the field trips.
  • Howard Field and Macy McGuiness at Picaboo for sharing their time and experience with the students.
  • Andrew Lacy, Jessica Kahn, Tim O'Brien, Ed Williams, and Susan Steele at Tapulous for sharing their time and experience and a bit of post-visit excitement with the class. We had no idea at the time that a deal with "the Mouse" was in discussion down the hall.  Congratulations on the Disney deal!
  • Ernie Schmidt at Tesla for giving a fascinating tour and several highly prized test rides in the Roadster!
  • Perry Ha from DFJ Athena for teaching the class about venture capital and introducing the class to the "MSU" concept.
  • John Horn from Infrastructure Group for teaching the class the ins and outs of business law.
Most of all, thanks to Alex, Diana, Emily, Greg, Ivan, Jackie, Jeff, Jessica, Kavita, Krissy, Matt, Michelle, and Nick for being a great class (last names withheld to protect the innocent).  I hope you enjoyed taking the course as much as I enjoyed teaching it.  I expect to see great things from all of you in the future.

Sunday, July 4, 2010

Sources of Economic Value

Lately, my kids have gotten more interested in how they can earn money to supplement their allowances.  My son, in particular, is also trying to understand why certain jobs pay more than others.  Answering their questions has forced me to go back to basics.

The first thing I had to clarify is the difference between social value and economic value.  I define social value as what a person contributes to society as a whole, whether it is monetarily compensated or not.  Economic value, on the other hand, I define as that which a person contributes for which someone else is willing to pay some form of compensation.  The reason I want to clarify this to my kids is that I don't want them thinking that pay is the measure of social value.  Unfortunately, while capitalism has much to commend itself as an economic system, because of the problem of externalities, there is often a disconnect between social value and economic value.

For example, you'll have a hard time convincing me that the social value generated by a stock trader on Wall Street exceeds that of a registered nurse.  And there is no way you're going to get me to believe that the $1+ million/year salary earned by a stock trader vs. the ~$75K/year earned by the nurse can be justified on social value grounds.  However, it is without a doubt a fact that the salary differential exists.  And this is due to the way economic value is generated.

Incidentally, one of the exciting aspects of the growing social business movement is that it may offer a way to close the gap between social value and economic value.

So what have I been telling my kids are the sources of economic value?
  • What you know - People pay for special knowledge, training, or your experience. This is where getting a good education is important.
  • What you can do for someone or what product you can provide to them that enable them to do something - People pay for the services that you can provide them or for products that you provide that enable them to do something.  For example, if they want their lawn cut, you can either cut it for them, or sell them a lawnmower.  Often, what you can do, stems from what you know.
  • What you control access to - If you control access to something someone wants, you can probably get paid for it.  Bridge tolls are an example of access control.  In most cases, unless you control some natural resource like oil or diamonds, access control is usually via some form of law.  For example, patents and trademarks are legal rights to control access to some intellectual property.  They are not inherent;  if they were, Gucci would not need to worry about knockoffs from China.  Interestingly, intellectual property usually has its roots in what you know and what you can do.  Other things where access can be controlled:  money and relationships.  These last two are major reasons why an investment banker can command a higher salary than a nurse.
These sources are then subject to the law of supply and demand.  The lower the supply vs. the demand for, the higher the resulting compensation.  It is this latter that tends to decouple economic value from social value.

So what I explain to my kids is that if they want to be paid well for something, they need to know things that most people don't but would like to know or be able to do something that a lot of people want but few people are able to provide.  This is why I don't pay my son much to cut the lawn (easy work that I'm quite willing to do myself) but why his grandfather pays him more to move large piles of dirt in his garden (hard work that no one else in the family wants to do).

This usually leads to another set of questions around where to find opportunities?  These stem from human needs and desires.  My simplified list:
  • Safety
  • Health which includes food, clothing, shelter
  • Companionship
  • Communication
  • Entertainment
  • Travel & Transport
  • Artistic Expression
  • To Know
  • Respect
I'm trying to get them to see that often times, opportunity lurks in the intersection of these different areas.  For example, all restaurants provide food.  However, the more expensive restaurants go beyond food to provide an environment that makes people want to spend time with other people (companionship), may have a theme or reputation that allows a host to express their taste (artistic expression, respect), and is conducive to discussion (communication), or even provides singing waiters or wandering violinists (entertainment). Something to ponder the next time you're paying $38 per adult/$16 per child at Goofy's Kitchen in Disneyland.

But its one thing to know where opportunity might be found and another to actually find or create it.  This is where creativity kicks in.  In a Harvard Business Review article entitled "The Innovator's DNA" by Jeffrey Dyer, Hal Gregerson, and Clayton Christensen the authors list five discovery skills that innovative people practice:  associating, questioning, observing, experimenting, and networking.

One skill I know my kids have down:  "Dad, how do they get fireworks to be different colors? "Dad, when are you going to be done writing that blog post so we can watch the fireworks?"

One down, four to go.